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BY EMEKA EJERE

Palpable anxiety and uncertainty now pervade the proposed amendment of the pension Act 2014 as opposition by PenCom and other pension administrators continues to mount.

Stakeholders in the nations pension industry have fault the proposal for the payment of a lump sum of 75 per cent from the Retirement Savings Account(RSA) to retirees upon attainment of retirement age.

The bill currently before the House of Representatives is seeking, among other things, to increase the lump sum payable to retirees to at least 75 per cent of the amount in their RSA and to criminalise undue delay and other difficulties pensioners encounter in getting their money.

The Pension Reform Act 2004, which was repealed and replaced with the Pension Reform Act 2014, established a mandatory Contributory Pension Scheme (CPS) for workers in both the public and private sectors.

Section 4 of Pension Reform Act 2014, provides for a mandatory minimum contribution of ten and eight percent of employees monthly emolument by the employer and employee respectively.

Each employee is to open a Retirement Savings Account (RSA) into which the contributions are to be paid, with a Pension Fund Administrator (PFA) licensed by the National Pension Commission (PenCom) established under section 17 of the Act, to regulate and supervise pension schemes in the country.

The PFA is to manage and invest the fund in the RSA, from where a contributor will draw benefits on retirement, in line with the provisions of the Act. The Act currently empowers the PenCom and the funds administrators to pay 25 per cent lump sum to retirees before calculating the amount to pay them on monthly basis as pension, from the remaining 75 per cent.

The Director-General of PenCom, Hajia Aisha Dahir-Umar, recently revealed that Nigeria has a pension industry that has accumulated pension assets in excess of N13 trillion invested in various aspects of the nations economy.

The Senate had in consideration of the bill seeking to bring respite to distressed Nigerian retirees, tagged Pension Reform Act 2014 (Amendment), 2022, which passed second reading last month, proposed the payment of 75 per cent to retirees as lump sum.

Misery and pain

The sponsor of the bill, Senator Aliyu Wamakko (Sokoto North), had stated that the bill sought to amend the Pension Reform Act 2014, to provide for a definite and reasonable percentage a retiree can withdraw from his/her retirement savings accounts.

The lawmaker regretted that despite the amendments of the Pension Reform Act 2004 as Pension Reform Act 2014, which provides for a departure from the old pension scheme of Defined Benefits, the legislation has failed to achieve its objective of solving the intractable pension crisis in the country.

Suffice to say that the issue of pension in Nigeria has more or less turned to a monster that has defied all efforts by successive governments to contain it.

In view of the retirees protracted sufferings and pains who are equally Nigerians, continued search for a lasting panacea is a duty bound upon us and all others concerned.

Wamakko explained that the Act in Section 7(1)(a) was amended in the bill to allow retirees withdraw 75 percent of their benefits. He bemoaned the situation where pension administrators in the country benefit at the expense of Nigerian pensioners who continue to suffer neglect.

These Nigerians who had retired from service after several years serving the nation are finding it extremely difficult to be the owners of their pension savings in this new arrangement.
So, unless that law is made categorically clear that they can withdraw the 75 per cent which we are proposing in this amendment, then they can definitely have some relief as retirees.

He said, Of what significance are all these huge assets and sums of money to the owners, the Nigerian pensioners who are dying daily of hunger, disease, and deprivation. I believe this is cruel and unjustifiably inhuman.

So let the Nigerian pensioners feel the impact of the assets in the savings they have generated. But the true situation is that only the pension administrators are benefitting while the owners continue to suffer total neglect.

Detrimental to retirees and economy

But the Pension Funds Operators Association of Nigeria (PenOp) has warned that the bill seeking 75 per cent lump sum for retirees under the CPS will have a negative effect on not on the pensioners but also the active contributors if allowed to stay.

In a presentation, PenOp said The proposal to increase lump sum payments to 75 per cent, while it may seem popular and laudable, it actually negatively affects both the retiree and the active contributors.

According to the operators, studies have shown that when people who are not used to receiving huge sums are given a large amount of money, they usually spend it on consumptive rather than productive activities.

What would happen when large payouts are given to retirees is that they would not have any other fall back and ultimately, they may become a liability on the society, PenOp said.

While explaining that it is what the worker saves plus investment returns that form the pension balance, it said, If we are advocating for a larger lump sum payment of at least 75 per cent as is proposed under this bill, then we need to ask if the 25 per cent remaining is enough to sustain you on a periodic basis for the rest of your time on earth. The answer is a resounding no.

Explaining the need for workers to join the CPS early, it said if the employer and employee contribute consistently over a long period of time, the funds in the individuals RSA will be sufficient to have a decent lump sum with enough funds remaining to earn a decent pension for life.

PenOp said, As a matter of fact, what we need to promote, is to encourage more workers to add to their statutory deductions while working, as this would enable them to shore up their balances over time.

What we need to advocate more is the consistency and discipline in the contributions that will even remove the need for any large lump sum payout when retired.

At a recent public hearing organised by the House Committee on Pension, the PenCom DG said the amendment, if approved, would be contrary to the provision of Section173 of the 1999 Constitution of the Federal Republic of Nigeria (as amended), which guarantees the right to pensions for all public officers as the payment of at least 75 per cent of the balance of the RSA as lump sum at retirement.

According to her, this will significantly deplete the pension savings such that the contributions will not be sufficient to provide meaningful pensions during retirement.

This converts the pensions into a provident fund and leaves such a retiree with no periodic pensions, which is contrary to the requirement of Section 173 of the 1999 Constitution, she said.

Also speaking on the bill, the Managing Director, IEI Anchor Pensions Managers, Mr. Glory Etaduovie described the the upfront payment is illusory and distractive, pointing out that a nation that saves and invests well grows, which is one of the objectives of pension.

Etaduovie, who said pension boosts infrastructure investment and development, stressed that it bridges critical development gaps.

It is a buoy for the capital market, stimulating growth in the economy and the employment. This fund must be jealously protected. The ratio of pension assets to the Nigerian Gross Domestic Product (GDP) was just eight per cent as at end of 2020. This is far from what obtains in the world.

Netherlands was 214 per cent in 2020; United States was 156.5 per cent; South Africa 78.8 per cent; and South Korea 61 per cent.

 

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